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How To Charge $1.6 Million For a New Drug And Get Away With It

Call it a warning shot: last week an Indian patent court shocked the $600 billion global pharmaceutical business by ordering Bayer, the German health care giant, to allow a tiny Indian generic drug company to sell cheap copies of the blockbuster cancer drug Nexavar – even though everyone agrees that the drug is protected by a patent. Instead, the court decided that Bayer had an obligation to make Nexavar available to people in India who needed it.

The Indian decision is “arbitrary,” says Sapna Palla, a lawyer at Kaye Scholer who represents pharmaceutical firms in patent litigation. Why Nexavar, and not any other high-priced drug? She says it “undermines the innovative pharmaceutical industry in India in the long run” and predicts the decision will “stymie foreign investment in India” because it will add to doubts about the Indian patent system. (Bayer contests the decision, too.)

It’s a basic tenet of the pharmaceutical business that companies have a right to charge high prices for new, innovative medicines. Because more than 90% of experimental drugs fail to be proven safe or effective, it’s necessary for medicines to generate billions of dollars in sales in order to entice investors and companies to sink money into research. Patent protection is not the ideal way to fund medical research, but nobody has found anything better.

But in this case, the Indian patent court and Natco Pharmaceuticals, which brought the case, have a point. The many thousands of Indian patients suffering from kidney or liver cancer could not get their hands on Nexavar. Only a few percent of them took it.

Knowledge Ecology International, a group that campaigns for people in developing world to have better access to new medicines, says Nexavar was priced at $69,000 for a year of treatment, 41 times the per capita income in India. For comparison, a drug that cost 41 times the U.S. per capita income would cost $1.6 million. The Natco price? $177.

In the U.S., Nexavar actually costs even more in real dollars. The average liver cancer patient would pay $80,000 for a ten-month course if he were paying the wholesale acquisition cost of Nexavar; kidney cancer patients pay $96,000 a year. Except, of course, that they don’t pay. Insurers cover much of the cost. Bayer and partner Onyx Pharmaceutical, which split sales duties in the U.S., have a program to make sure that eligible patients aren’t responsible for more than $100 of copayment. They also have programs to make sure that uninsured patients have access to the drug.

Even for mass-market drugs, it is increasingly the reality in the U.S. that the patient doesn’t pay. Insured patients can get $160 worth of branded Lipitor for $4, with maker Pfizer picking up the rest of the co-payment. Meanwhile, Pfizer is negotiating with health plans to convince them to buy its Lipitor over the $120-a-month generic version.

This is even more true for the specialty medicines, like cancer drugs, that are the drug industry’s stock-in-trade these days. The customer is not the patient but the insurance company or government picking up the check. That’s why drug companies refer to governments and insurers as “the payors.”

As a result drug companies can price new medicines at a cost that no individual person could pay. I count ten medicines that have an average per patient cost of more than $200,000 per patient per year, including the treatments made by Sanofi’s Genzyme unit, Biomarin, Alexion Pharmaceuticals, and now Vertex’s new cystic fibrosis drug, Kalydeco — the first medicine ever to work on the genetic defect that causes that lung disease, but only for a select few that have a particular mutation.

It’s an open question, but it’s possible that it’s better to have $300,000 drugs that are highly effective than $3,000 drugs that aren’t . All these medicines are priced as they are because the Payors will pay. Alexion, whose Soliris treats rare and lethal disorders that destroy blood cells or damage the kidneys. “Even at a $400,000+ per year price point, they manage to justify the value of their medicine for the small patient populations with the relevant diseases,” writes Sanford C. Bernstein analyst Geoffrey Porges. Proof? Alexion’s stock has been outperforming Apple’s. That will get a lot more companies interested in rare diseases. We’re still not at $1.6 million per patient per year, the per capita equivalent of Bayer’s price in India, but there is no reason to think we can’t get there.

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Again you are ignoring the issue. Yes, prisoners should receive routine medical care. What I resent is a prisoner receiving heart, lung, liver and other transplants which are generally not covered by most health insurance policies. In other words, some prisoners receive treatment which they would not receive if they were not in prison. Now I read that California and others are offering sex change treatment and operations. What a farce!

I am getting old, my knees are failing, but I am not rushing to medicare demanding my knees be replaced. Growing old is a process and my knees are not so bad that I am completely immobile. Just because I may be entitled under the law to certain treatment does not mean that I should always take advantage of it. I am not a parasite as so many have become.

Pricing is a strategic decision that most MNC’s have to deal with, when they are targeting emerging markets. Not all MNC’s are approaching emerging markets with the same strategy as Bayer. GSK has also launched cancer drugs in the US, but they have kind of mastered the art of price discovery in emerging markets. They have this knack of optimizing price and volumes to maximize profits. And all the more none of GSK’s drug has been challenged by Indian companies for compulsory licensing. To get a glimpse of their pricing strategy visit the following link http://www.pharmaintellect.com/2011/07/buy-gsk-india-launches-votrient-and.html

My husband just finished Hepatitis C treatment with the new drug out last year, Incivek. Fortunately we have insurance because the cost of treatment alone would have been $160,000. Many times drug manufacturers will give the drug to people who cannot afford it. It can only help them, the more their new drug helps those that are sick.

“but it’s possible that it’s better to have $300,000 drugs that are highly effective than $3,000 drugs that aren’t .” The problem is that the $300,000 drugs are not highly effective. The prospects for the American cancer patient receiving these treatments is hardly any better, if at all, compared to cancer patients in 3rd world countries that use the less expensive treatments.

I beg to differ because according to the cancer journal for clinicians, DOI: 10.3322/canjclin.57.4.242, 5-year cancer survival for young adults has barely improved for young adults (age 15-30) over 40 years (80% vs 70%), while death-rate has dropped in half. The halving of the death rate is due to lifestyle/eating changes that people didn’t make 30-40 years ago, as well as due to early detection, whereas drugs have the more immediate benefit (5 year survival), which has hardly changed. Rates have dramatically improved for older adults (above 30), but this is due almost entirely to early detection which is best in developed countries (note that young adults received the same drugs as older adults).

Your data that the $300,000 drugs are “far more effective” is true only if you use the ACS definition for treatment effectiveness, which not in terms of survival rate, but in terms of cancer cell statistics. In other words, the $300k drugs are in fact better at acutely killing cancer populations but are not necessarily improving in terms of saving lives. If you do not believe me I encourage you to read the more recent studies … they do *not* use patient survival as a yard stick, but cancer cell statistics such as tumor size and detection rates (especially with regard to chemotherapy). This is why at the clinical center of the University of Munich Epidemiologist Dieter Hoelzel, 62, recently said in a “Der Speigel” article recently after reviewing standard oncology patient records that survival has not improved since 1978 regarding cancer of the colon, breast, lung and prostate. Now there have been advances regarding early detected cancers, but for established tumors there is little difference, and can not be proven that the improved numbers regarding early detected cancers is simply due to the fact that “early detections” are in fact detected earlier than “early detections” from 20 years ago – something we expect to be true given improved detection technology and practices.

David, the highest prices — $300,000 plus — are for rare diseases like cystic fibrosis or aHus, not cancer. There are some cancer drugs (Gleevec, Revlimid) that really are phenomenally effective, and you don’t see that if you lump them in for all cancers. (You care about the survival rates for CML and GIST and multiple myeloma, in those cases.) If you’re trying to convince me that many cancer drugs are overpriced relative to their benefit, you’re barking up the wrong tree — because I already think that. But some are worth the money, too.

By your own admission you’re talking about exceptions to the rule. These exceptions are important though, and I understand with and agree with both sides of the story … but what I was saying is for things like cancer, the #2 killer … that affects everyone in one way or another … it’s what should be getting most of our attention when the average course of chemo costs $100,000 and for most cancers has not seemed in 40+ years to improve survival time. Feel free to go after these high prices small fish … but they are small fish relative to what I’m talking about. $100,000 for a course of treatment that even most oncologists forgo for themselves, but recommend for others regarding our #2 killer…. that’s not a small fish. That’s strangling our economy.

I guess”businessmen” will have to seek another fertile field to make windfalls. Unless they can work a deal like Warner-Chillcot did, buying PGs Pharma division and sticking it to the Ulcerative Colitis and Crohn’s crowd with the price increases for Asacol. The stock price took off. They they diluted the market with hundreds of millions worth of zero cost stock options and stripped out the cash. Now they say there is no replacement for the Asacol cash cow (the patent expires next year) and the stock price has settled back to the pre-PG deal level. And people ask me why I wont buy “equities”.

Oh, yeah, as others sought to develop alternates, WC sued and the FDA agreed. The patent is not the drug in Asacol(that’s been around since the 50′s), it’s the coating. Now the other companies can even start testing until the patent expires….costing patients hundreds of millions more in the meantime.

One problem is that the drug companies must recoup their R&D cost in a few years before the patent expires. My solution would be to give the inventor a perpetual patent but immediately allow generic manufacturing of the drug at “reasonable” royalties.

I do have enormous respect for the Drug companies in the West especially the United States. I have been living in the US for more than 10 years and I am from India. Yes, we have a problem, and that need to be resolved without damaging the inventor and the investors of the Drug companies. The people in the developed countries can say anything – but they are forgetting that most of their countries revenues are coming from those cheap counties like India and China by selling Coke and from the sales of Arms.

You cannot expect the American prices in India and any other developing country. Drugs should be available to everyone in the world. All the drug companies need to do is to make sure the drug meant for a country should not be sold in a different country. For example, make sure Canadian drugs are not sold in the US.

Books are a great example. A Java programming book costs $49.99 in the US and costs only Rs.200 ($4) in India. Then why not drugs? I completely support the Indian Court’s judgement in this case. Drug companies actually make more profit by selling more in volumes.

Profit over and above a “reasonable” ROI is unconscionable when in a medical context as far as I’m concerned. Canada has a much cheaper system of mostly generic drugs with a regulatory framework that reduces overall cost. Perhaps if governments went back to funding public research more and relying less on private for profit companies with subsidies this wouldn’t be such a concern.